User Churn vs Revenue Churn
- User Churn: The number of customers that churned during the period, expressed as a percentage.
- Revenue Churn: The amount of money you did not earn (lost) due to churning customers during the period. Expressed both as a percentage and an amount.
Calculating churn is easy
The formula for calculating churn is simple enough: Number of churns during the period / Number of customers at the beginning of the period
|Customers at Start||64||67||71|
|Existing who leave during period||5||8||3|
|New who churn||2||3||2|
|Churn Rate||5 / 64 = 7.81%||8 / 67 = 11.94%||3 / 71 = 4.23%|
The formula for calculating churn is simple enough: Amount of MRR "lost" during the period / Total MMR at the beginning of the period
|MRR at Start||$1920||$2010||$2130|
|Lost MRR during period||$150||$240||$90|
|MMR Churn||150 / 1920 = 7.81%||240 / 2010 = 11.94%||90 / 2130 = 4.23%|
Note: Generally your User Churn will be higher than your MRR Churn. This is because most SaaS products have multiple plans, each with a different price. In our example above the rates are the same because each customer is valued at $30 per month (only one plan).
Calculating churn is
Although the formula is easy (and doesn't change), accurately computing the number of customers at the start of the period and the number of existing customer who leave during the period can be tricky.
Changing the past
Let's say you have a customer that cancels today, she hasn't used your app in three months, and asks for a refund for those months. Let's also say that you give her the refunds. Has your churn changed for those months? Yes it has. Does your favorite SaaS metrics software take this into account? You have no idea.
People who quit and come back
Let's say someone accidentally deletes their account, or someone's made a mess of their account and just wants to start over. Does this count as churn? No, it shouldn't. Does your favorite SaaS metrics software take this into account? You have no idea. Does your payment gateway take this into consideration? EG., To make this work in Stripe you should never delete customers, just cancel their subscriptions, then if they signup again, use the same Customer ID.
What if in the same senario the customer waits two days and so their cancellation and new signup are across different churn periods. Does your favorite SaaS metrics software take this into account? You have no idea.
PS. LessChurn will let your users pause their billing (cancel their subscription and resubscribe at the right time).
People who change plans
Does changing plans affect churn? Yes, because it affects MRR. If your favorite SaaS metrics software breaks down churn into your plans, then it takes this into consideration. If it doesn't show you a break down, it probably doesn't.
267 Other factors
There are a ton of other factors just like these that go into calculating churn. No two SaaS metrics apps will handle the same ones. For example, here are four metrics apps and the churn they show for the same month:
- BareMetrics: 4.5%
- FirstOfficer: 7.1%
- ProfitWell: 5.44%
I know the churn formula for LessChurn and I can tell you it does not take a lot of these factors into account. Not yet!
So which one is right? I have no idea.